After a protracted recession in the oil patch, offshore helicopter operators who ply the waters of the Gulf of Mexico are reporting a resurgence in deepwater activity. What's more, despite their recent financial struggles, these operators possess sufficient capital and aircraft to service growing deepwater demand. There's little doubt that deepwater activity is picking up. Because shallow fields are drilled first, the prolific oil discoveries of the future lie under ocean water deeper than 600 feet, the level typically defined as deep water. So far, evidence suggests that the major helicopter operators in the Gulf have deep enough pockets to exploit the opportunities of deepwater exploration and production. That's good news for an industry whose fortunes are moving into waters 8,000 feet deep. "Oil companies are increasing their budgets for exploration and production in deep water, that's certain," says Allen Parks, Dain Rauscher Wessels' Dallas-based managing director of corporate finance, oilfield services. "Shallow-water activity, meanwhile, has already picked up significantly during the last couple of months. Helicopter-company profits should improve from these trends." The three dominant players in the Gulf, in order of size, are all Louisiana-based: Petroleum Helicopters Inc., Lafayette; Air Logistics, New Iberia; and Era Aviation Inc., Lake Charles. These operators are betting that deepwater activity will raise their fortunes during the next few months. All three have the financial wherewithal to take advantage of the boomlet. PHI is publicly traded (Nasdaq: PHEL). Air Log is a subsidiary of Lafayette-based Offshore Logistics (Nasdaq: OLOG). Era is a subsidiary of the Rowan Cos. Inc. (NYSE: RDC), the offshore drilling company based in Houston. An examination of the finances and aircraft inventory of the Gulf's big-three helicopter operators shows that they have the capacity they need for expanded deepwater activity. Or, if their capacity proves insufficient, they can quickly ramp up. "Getting the money to serve deepwater drilling shouldn't be a problem for helicopter operators in the Gulf," says Parks. "A lot of capital is available to them in the form of debt or equity. If they don't have the capital on their balance sheets, they can raise the capital very easily, because the public markets are very receptive right now to oilfield-service companies raising capital." Parks says oil companies are increasing their deepwater activity in the Gulf for fiscal years 2000-01 by about 20%. "Everyone in offshore services is anticipating major profit improvements." Parks hastens to add, though, that the term "upswing" is a bit strong to characterize deepwater activity now. The fact is, it takes six to nine months for oil companies to gear up for boosted production. An eclectic mix Founded in 1949, PHI serves drilling rigs and production platforms as far as 200 miles offshore in 3,000 feet or more of water, currently. The company's 300-helicopter fleet is an eclectic mix of almost every model available for offshore support. Ken Townsend, general manager, domestic oil and gas division, says about 35% of PHI's activity right now is in deep water-about as much as 12 months ago. The percentage will increase about 5% during the next 12 months, he anticipates. "There is an increase in deepwater activity, but it's not really a boom at this point," Townsend says. "The increase in deep water business seems to be gradual. Most of the major oil companies are still in a conservative mode as far as their exploration and production budgets are concerned." Producers are currently moving new-built semisubmersible rigs and drillships into the Gulf for drilling in up to 8,000 feet of water, at distances of 165 to 200 miles from shore. The deployment of this equipment is a sign, he says, that oil companies are preparing for deepwater drilling in a serious way. Securing equipment And, with about a 50% market share, how is the Gulf's largest offshore helicopter-service provider gearing up to serve the deepwater exploration and production sector? PHI recently procured a Sikorsky 76 C+ that went to work in August in the Gulf to support an extremely large drillship. "Will PHI procure more S-76s for deep water? It depends on our oil-company clients' interests," Townsend says. "Clients sometimes elect to go with cheaper and older aircraft, such as the Bell 214ST, which is fine for deep water. But if we have to procure S-76s, we won't have trouble getting the financing." According to Townsend, it's a simple matter of arithmetic. "The question is whether customers can afford the rates we charge for more expensive aircraft," he says. "The S-76 C+ is a $7-million aircraft; the Bell ST, about $2 million." PHI has placed a deposit on the Bell/Agusta 609 civilian tilt-rotor, a new long-range helicopter that is especially well-suited for deepwater support. The nine-passenger BA609 combines the speed of a turboprop airplane with the vertical take-off and landing (VTOL) capability of a helicopter. With a service ceiling of 25,000 feet, the BA609 also confers the ability to climb above harsh weather. PHI has given a vote of confidence to the revolutionary tilt-rotor; whether the company buys more copies (or follows through on its intention to purchase) is open. "Aircraft like the BA609 and the S-92 are relatively heavy, and expensive," Townsend says. "Meanwhile, we're getting good use out of our Bell 412s. The economics aren't there for some of these new models coming to market, at least not yet. Our customers are more efficient in the way they operate offshore than they've ever been." Foreign alliances Air Log, the Gulf of Mexico's second-largest helicopter company, operates roughly 150 aircraft, the majority of which are deployed in the Gulf of Mexico. Among its fleet are such stalwarts of deepwater support as the S-76. Whether Air Log purchases more S-76s depends, again, on the price of oil and customer demand. Air Log has been busy forging alliances with its North Sea counterparts, and while the Gulf may be in the midst of a modest recovery, the North Sea remains mired in painful recession. That said, North Sea operators are hardly sitting on the sidelines. U.K.-based Bristow Helicopters, an Air Log sister company, despite its current financial woes, recently launched a joint venture with Air Logistics dubbed United Helicopter Maintenance, which provides extensive technical services to rotary and fixed-wing operators worldwide. United Helicopter Maintenance will operate from Air Logistics' facility in New Iberia and Bristow Helicopters' facility at Redhill Aerodrome, Surrey, U.K. The new organization will initially offer support for the Bell 205, 206, 212, 214, 407, and 412, as well as for such heavier helicopters as the Sikorsky 61 and 76, Eurocopter SA-330 Puma, and Aerospatiale 332 Super Puma. Services will include airframe major inspection and refurbishment; avionic installations; dynamic component overhaul; manpower and operational support; corporate helicopter support; hydraulic component repair and overhaul; and GE CT58 engine overhaul. Era Aviation, meanwhile, operates three Sikorsky 61Ns and one Super Puma-helicopters typically placed in the "heavy" category. The offshore industry in the Gulf operates a combined fleet of roughly 13 heavy (18- to 19-passenger) helicopters, which are particularly well-suited for deepwater support. Al Meyer, Era manager, Gulf Coast division, says Era's efforts to exploit the deepwater resurgence are already under way. "The S-61s and Super Puma were added during the last three years, with deepwater support in mind," Meyer says. "It's a growing market and we're adding aircraft to address it." Era operates 50 helicopters in the Gulf, and 50 in Alaska and the U.S. West Coast. The company added a Sikorsky 76A++ in June; it plans to add at least one or two additional helicopters during the next 12 months, probably of the same model. Era has always emphasized twin-engine aircraft; since 1988, it has only operated twin-engine helicopters in the Gulf, such as the Boelkow 105, the Bell 412, the Sikorsky 61N and the Super Puma. "That's for safety reasons," Meyer says. "But now, as deep water takes off, we're already there with a fleet that makes more sense for deep water. Our ability to capitalize on the upswing in deep water has enabled us to come out of the recession sooner than other offshore operators." During the last two years, Era has seen a steady increase in the utilization of aircraft, mostly deep water, because of increasing oil prices. In the same time period, it has purchased three Sikorsky 76A++ helicopters. "These are 12-passenger, twin-engine aircraft that have been re-engined with Turbomeca engines, rather than the Allison," Meyer says. "They're more powerful and therefore better for deep water. We've been making the capital investments, and we're ready." "Shallow- as well as deepwater activities are picking up," says Marshall Adkins, Houston-based oilfield-services analyst for Raymond James & Association. "Offshore activity is increasing across the board. In fact, if you look at the number of rigs contracted, it's in the range of late 1997, the last boom period for the offshore industry." Specific numbers from operators are elusive, but one thing is clear: hourly rates for offshore operators suffered during the 1998-99 downturn. Adkins says this situation will change during the next few months. "As a consequence, what you'll see is continued investment from their own resources in deepwater support," he says. "Look at the supply-boat sector." Tidewater Inc. and other supply-boat operators are building boats with the range and size that is expected to be needed to serve deepwater customers. "The same thing is happening with helicopters." Adkins hastens to add that oil and gas companies have only recently increased their capex budgets for deep water. Therefore, he says, the corresponding pick-up in deepwater activity really won't gather a full head of steam until early 2001. M John Persinos is editor-in-chief of Rotor & Wing magazine, a Phillips publication serving the worldwide rotorcraft industry. He can be reached at 301-340-7788, ext. 2164, or for R&W subscription information, call 800-777-5006.